Green building takes into account not only the products used in construction, but the effect on the site, the consumption of resources and environmental effects as a whole. According to the U.S. Environmental Protection Agency, green buildings are designed to reduce the overall impact of the built environment on human health and the natural environment by: efficiently using energy, water and other resources; protecting occupant health and improving employee productivity; and reducing waste, pollution and environmental degradation.

So what does that mean to REALTORS^®? The following questions were recently asked about going green, building standards and energy efficiency in real estate practice.

Energy Star®

What does ENERGY STAR^® mean?

Products, homes and buildings that earn the ENERGY STAR^® designation prevent greenhouse gas emissions by meeting strict energy-efficiency guidelines set by the EPA and the U.S. Department of Energy. This partnership of government, business and consumers is united in a common goal to protect the environment for future generations.

The EPA partners with builders, lenders and manufactures in a voluntary labeling program designed to identify and promote energy-efficient products to consumers. The EPA has also extended the use to cover new homes and commercial and industrial buildings. Required guidelines, specifications and performance levels must be achieved to earn the label. 

How can a REALTOR^® use the term ENERGY STAR^® or the ENERGY STAR^® logo?

ENERGY STAR^® and the ENERGY STAR^® mark are registered U.S. trademarks, just like REALTOR^®, and must be used in compliance with formal guidelines. Compliance standards are contained in the EPA Publication, Using the ENERGY STAR Identity to Maintain and Build Value, at www.energystar.gov/ia/partners/logos/downloads/BrandBook508r.pdf.

Energy-efficient mortgages

What are energy-efficient mortgages?

A buyer may consider financing with an Energy-Efficient Mortgage (EEM). Typically an EEM is used for the purchase of a new ENERGY STAR^®-qualified home. Borrowers using an EEM have the opportunity to finance cost-effective, energy-saving measures as part of a single mortgage and stretch debt-to-income qualifying ratios on loans, thereby allowing borrowers to qualify for larger loan amounts and better, more energy-efficient homes. To get an EEM, a borrower typically has to obtain a professional home energy rating before financing is approved. This rating verifies for the lender that the home is energy-efficient. This information is used, for example, to increase the buyer’s purchasing power by allowing the lender to increase the borrower’s income by a dollar amount equal to the estimated energy savings generated by the energy-efficient home.

Energy Improvement Mortgages (EIM), another type of an EEM, are used to purchase existing homes and make energy-efficiency improvements. EIMs allow borrowers to include the cost of energy-efficiency improvements to an existing home in the mortgage without increasing the down payment. The borrower uses the money saved in utility bills to finance energy improvements.

A buyer seeking an EEM or EIM may need to draft the offer to purchase contingent upon obtaining a home energy rating. The lender will want to know the estimated monthly savings and the value of the energy-efficient measures, that is, the Energy Savings Value.

EEMs (and EIMs) are sponsored by federally insured mortgage programs (Federal Housing Administration and Veterans) and the conventional secondary mortgage market (Fannie Mae and Freddie Mac). Lenders can offer conventional EEMs, FHA EEMs or VA EEMs. The Department of Housing and Urban Development has a list of approved lenders, available at www.hud.gov/ll/code/llslcrit.cfm. More information about EEMs and EIMs is available at www.energystar.gov/index.cfm?c=bldrs_lenders_raters.pt_lender_benefits.

Home energy audits

A buyer wants an energy inspection of the home. How does one go about this?

An energy audit, or inspection, of a home may be conducted by an individual or a professional home energy auditor to determine a home’s energy efficiency. Based on the results, a homeowner can make changes and improvements that can result in lower utility bills and enhance energy efficiency. A buyer may also qualify for an EEM if the home meets energy-efficiency standards. 

In an offer to purchase scenario, the buyer may wish to make the offer to purchase contingent upon a professional energy audit by a local professional. A professional auditor can use specialized techniques and equipment to assess the home and its components, for example, whether the windows and doors are air-tight. The parties and agents can contact the local utility company to see if they offer energy audits or can recommend professionals to conduct the audit. Some utilities offer discounted audits, home improvement credits or rebates for resulting home improvement projects.

The U.S. Department of Energy offers recommendations for both “Do-It-Yourself” and professional audits, which are available at www.energystar.gov/index.cfm?c=home_improvement.hm_improvement_audits.

Incentives/federal tax credits for energy efficiency

Are there still tax credits available for home improvements made in 2008?

The Home Improvement tax credit applied to energy-efficient home improvements placed into service from January 1, 2006, to December 31, 2007. Tax credits for solar water heaters and solar panels remain in effect until December 31, 2009. A summary of tax credits is available at www.energystar.gov/index.cfm?c=products.pr_tax_credits.

Other incentives may be available for homebuilders constructing energy-efficient dwellings. Energy conservation modifications such as building green, home improvements or energy audits may result in federal, state or local tax incentives, credits or rebates. Homeowners and buyers may check with their local utility company or the Database of State Incentives for Renewables & Efficiency, online at www.dsireusa.org/library/includes/maphomeowner.cfm?State=WI&CurrentPageId=1&RE=1&EE=1.

Representations

Can a broker be held liable for false or deceptive claims about a building’s energy efficiency?

Yes, it is possible. Brokers are best protected by making specific statements about the characteristics of the building instead of using broad labels and trademarked terms such as, “This is a ‘green’ building.” Brokers are advised to use energy-efficiency terms carefully. As the green phenomenon explodes, litigators are already seeing an increasing incident of claims. As always, REALTORS^® should attribute representations to their source and be prepared to supply supporting documentation.

Rental weatherization

The buyer is thinking about purchasing a second home up north. How do the rental weatherization standards apply to second homes?

The Wisconsin Department of Commerce has energy conservation standards for certain residential rental units. If a property is not owner-occupied, it will be subject to rental weatherization standards unless otherwise exempt.

Wis. Admin. Code ch. Comm 67 has been recently amended relating to Rental Weatherization standards for second homes. The definition of “owner-occupied” has been changed to provide that an owner must occupy the dwelling unit exclusively as his or her primary or secondary residence within the first year of ownership. This change recognizes that an owner may have two (but no more than two) primary residences for purposes of the Program. A summary of changes to the Rental Weatherization program is available in the May 2008 edition of the Wisconsin Real Estate Magazine at news.wra.org/story.asp?a=921. 

For more information: 

NAR Field Guide to Green Homes and Green Mortgages:  www.realtor.org/library/library/fg313

Energy Efficiency and Green Building Resources:  www.whatsworking.com/resources.html

Energy Star^®:  www.energystar.gov/index.cfm?c=home.index

“Is Green Turning into Gold?”: www.realtor.org/smart_growth.nsf/docfiles/rebacgreenbuilding.pdf/$FILE/rebacgreenbuilding.pdf

NAR Green Building Resources:  www.realtor.org/smart_growth.nsf/pages/greenbuilding?opendocument

Tracy Rucka is a Staff Attorney for the WRA.